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Supply Chain Management Case 1 Nokia And Ericsson

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Bowie State University
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Case 1: Nokia vs. Ericsson: The Advantage Goes to the Company With Better Supply Chain Risk
Management (SCRM)
1. What were key differences between Nokia and Ericsson in anticipating and responding to the
critical supply chain risks they shared, and how did these differences determine the outcome
of the competitive struggle between them?
Nokia and Ericsson had two very different plans, responses, and outcomes as a result to
the Philips supplier disruption due to a fire at one of their facilities. In terms of preparation,
Nokia developed a heightened monitoring system and process leading up to the disaster that
allowed them to act quickly. The production planner for the affected product was able to
notice the delays in supply prior to being notified by the supplier and therefore remained
proactive in response. The culture within Nokia to discuss problem openly allowed for
transparency at high levels and in turn quick action from the top to mitigate. Nokia had
response routines already developed and were able to immediately enact them in this
instance. 5 year prior to the fire, Nokia created the capabilities to navigate such a challenge.
These capabilities were encompassed in the strategy, processes, values, and were supported
by technology within Nokia’s organization. Nokia also had sufficient safety stock levels
established through the planning process to account for the disruption in inventory. They also
had as other suppliers for certain parts and were not singly sourced to enable minimal
disruption.
Conversely, Ericsson’s planners and managers did not sense an immediate problem as
they did not have a robust process to monitor supply chain disruptions. Even still once the
problem was realized the lower level staffers did not escalate the issue to upper management
and it took over 3 weeks for the full gravity of the situation to be understood at all
organizational levels. By the time high level management got involved there were very few
options for Ericsson to exercise.
In response to the supply chain risk, Nokia took three key steps. The first was partnering
with Philips and influencing Philips to shift production to their other facilities to fill Nokia’s
demand. Secondly, a cross-functional team was able to redesign some chips that could be
produced elsewhere to eliminate the single sourced risk for that product. Lastly, a third group
within Nokia worked to find alternative manufacturers to reduce the pressure on Philips and
they had two suppliers respond within five days. Because of these immediate actions by
Nokia, and the inaction from Ericsson, when Ericsson finally asked Philips for help it was
too late because Nokia had already consumed Philips’ spare capacity.
Ultimately, Nokia’s initial sense of the problem and their proactive response allowed
them to have little to no affect on customer and financial performance. Profits continued to
rise, and their quarterly statements did not even mention the fire. Nokia’s deep relationship
with its supplier helped them to take quick action. Their knowledge of the supply market
helped them to source elsewhere and engineering design helped them to source chips from
other manufactures. Unfortunately, Ericsson was extremely affected by the supply outage

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due to inactive responses and little to no pre-planning for a disaster such as this. They simply
did not have a SCRM process. During the quarter of the fire they reported operating losses of
$200M in their mobile phone division. The impact continued to spread in the following years
and eventually Ericsson announced a total $2B loss in the mobile phone division and they
exited the mobile phone market. Due to Nokia’s superior strategy, they in turn increased
revenues and market share with Ericsson’s exit.
2. What were Ericsson’s lessons learned from the experience with the Philips fire, and how did
it seek to better manage supply chain risks? How did Ericsson organize its SCRM program?
What was the role of the Risk Council? How did Ericsson try to identify, classify, and rate the
impact of risks at suppliers? Do you think Ericsson’s approach to SCRM was effective in
addressing its challenges?
After the fire, Ericsson developed and implemented processes and tools for supply
chain risk management. The purpose was to minimize risk exposure and its approach
included feed-back loops between dependent processes. The risk management process
included identification, assessments, treatment, and monitoring. They also
implemented contingency planning and event handling procedures to follow should a
need arise.
The supply chain risk management program was organized to work together in a
matrix-oriented way. Ericsson organized a risk council that had many different cross-
functional players working together and sharing the responsibility for implementing
and maintaining information regarding the risk management. These players included
individuals from corporate risk management, purchasing and those who interfaced
daily with suppliers, product owners from the business, and those individuals who
were responsible for evaluating suppliers. The risk council had the overall
responsibility for risk management within Ericsson, developing directives, having
contact with insurance companies, and coordinating risk management activities
overall.
The risk identification process first started with mapping the supply chain risks
that were believed to exist upstream with suppliers as well as within products and
services. They defined critical parts and defined risk sources within each process. The
goal was to understand the probability of impact and the severity. Severity was
expressed in how long the impact would affect Ericsson’s deliveries and was
articulated in “business recovery time”. There were four different classifications all
dependent on the business recovery time length. Ultimately, Ericsson combined the
impact and probability into a matrix of risk to evaluate. The impact can be financial,
business control, hazards in the surroundings, hazards onsite, and business-
interruptions handling. Once impact and probability were assessed, mitigation
strategies were created, and responsible parties were assigned. Standard templates
were created describing the risk, probability, and consequences, as well as prescribed
mitigation strategies with tier costs and affect. Lastly, risk monitoring and follow-up

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Case 1: Nokia vs. Ericsson: The Advantage Goes to the Company With Better Supply Chain Risk Management (SCRM) 1. What were key differences between Nokia and Ericsson in anticipating and responding to the critical supply chain risks they shared, and how did these differences determine the outcome of the competitive struggle between them? Nokia and Ericsson had two very different plans, responses, and outcomes as a result to the Philips supplier disruption due to a fire at one of their facilities. In terms of preparation, Nokia developed a heightened monitoring system and process leading up to the disaster that allowed them to act quickly. The production planner for the affected product was able to notice the delays in supply prior to being notified by the supplier and therefore remained proactive in response. The culture within Nokia to discuss problem openly allowed for transparency at ...
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